After conceding its position as the fastest growing major economy to China for a year in 2017, India is likely to reclaim the position in 2018, with growth expected to accelerate to 7.3% in the year, according to the World Bank’s Global Economic Prospects.
The report projected China’s economic growth to slow to 6.4% in 2018 from 6.8% in 2017. The World Bank also revised India’s growth estimate for 2017 to 6.7% from 7% projected in October, blaming short-term disruptions caused by the newly introduced goods and services tax (GST) and a softer-than-envisioned recovery in private investment.
To be sure, the estimates are on a different fiscal year basis for each country. India’s fiscal year runs from April to March. China follows a January-December fiscal year.
The government released GDP data around 5.30 today. If there was 6.9 percent growth, that would top China’s 6.8 percent annual pace for October-December. The last time India had a faster growth rate which was in the final three months of 2016. India’s expected improvement on its 6.3 percent growth in July-September comes as its manufacturing and services sector.
India jumped 30 places to break into the top 100 for the first time in World Bank’s Doing Business report 2018.
The GDP data could help Prime Minister Narendra Modi, who faces criticism over mounting bad loans of state banks and a $1.77 billion fraud at state lender Punjab National Bank, the biggest in the country’s banking history.
Last week, PM Modi told industrialists that his government, which got a “twin balance sheet” problem resulting from bad debt in banks and many businesses, was determined to put the economy back on a higher growth trajectory. PM Modi is trying to accelerate growth through higher state spending including $32.36 billion for recapitalization of state banks, beset with mounting bad loans of nearly $148 billion.
The global economy, meanwhile, is experiencing a broad-based cyclical upturn, which is expected to be sustained over the next couple of years, although downside risks persist, the World Bank said.
“In contrast, growth in potential output is flagging, languishing below its longer-term and pre-crisis average both globally and among emerging market and developing economies. The forces depressing potential output growth will continue unless countered by structural policies,” it cautioned.
Economic affairs secretary Subhash Chandra Garg tweeted: “World Bank releases its GDP growth estimates. India projected to grow at 6.7% in 2017. Higher growth of 7.3% projected for 2018. Impressive advance corporate tax payments in 3rd quarter indicates India’s growth turnaround to be much better.”
Direct tax collections grew by more than 18% in the first nine months (April-December) of the fiscal year 2017-18 to two-thirds of the full-year target, which is expected to provide a breather to the government as it struggles to contain the fiscal deficit.
“In all likelihood, India is going to register higher growth rate than other major emerging market economies in the next decade. So, I wouldn’t focus on the short-term numbers. I would look at the big picture for India and big picture is telling us that it has enormous potential,” told Ayhan Kose, director, development prospects group, World Bank.
The World Bank said strong private consumption and services are expected to continue to support economic activity. “Private investment is expected to revive as the corporate sector adjusts to the GST; infrastructure spending increases, partly to improve public services and internet connectivity; and private sector balance sheet weaknesses are mitigated with the help of the efforts of the government and the Reserve Bank of India,” it said.
Over the medium term, GST is expected to benefit economic activity and fiscal sustainability by reducing the cost of complying with multiple state tax systems, drawing informal activity into the formal sector, and expanding the tax base. “The recent recapitalization package for public sector banks announced by the government of India is expected to help resolve banking sector balance sheets, support credit to the private sector, and lift investment. The global trade recovery is expected to lift exports,” it added.
The International Monetary Fund forecasts India’s economic growth could reach 7.4 percent in 2018 and 7.8 percent in 2019, overtaking rates projected for China of 6.5 percent and 6.4 percent, respectively. The world’s seventh largest economy, which grew at more than 9 percent a year from 2005 through 2008, is still far from firing on all cylinders. Domestic demand and private investment remain weak.
Urjit Patel, governor of the Reserve Bank of India (RBI), earlier this month said the economic recovery was at a nascent stage and called for a cautious approach. The central bank has kept its key rate unchanged since a 25 basis points cut in August.
Source: Economic Times